To avoid Wall Street charlatans, try getting a good dog

Lauren Rudd

Published: Friday, February 28, 2014 at 1:00 a.m.

Last Modified: Thursday, February 27, 2014 at 8:04 p.m.

As someone who regularly teaches courses in investment analysis, it is often apparent to me that, while the consensus is to learn, the risk of dealing with Wall Street continues to be a concern. It is not just an inherent distrust of the Street; the concern often embraces a repugnant opinion of the purveyors of its products.

That Wall Street has engendered such suspicion is a curse of its own making, a consequence of having gorged itself on the spoils of several financial bubbles, while at the same time decimating the very eggs given to it for growth and safe keeping.

Tragically, for many it is too late to prevent the victimization perpetrated by those denizens of the financial world who try to engender trust with a stream of letters after their name or an association, however tenuous, with a firm or person of some repute. And then there's the offer of a free meal.

Unfortunately, the returns they promise are rarely forthcoming.

To further complicate matters, the advisers angling to take advantage of the unsophisticated concoct a seemingly endless variety of apocalyptic investing scenarios. Of course they promise to help you avoid these treacherous shoals -- for a small fee.

Ignore it all.

Investing in common stocks is prudent and appropriate at virtually any time and usually requires little more than a modicum of common sense.

You do not need professional advice or specialized computer software or expensive newsletters and whatever else is being touted these days by those claiming to have an inside track to the Holy Grail of investing, a flawless method for deciding what to buy and when.

There is no Holy Grail, though for some the search has become an obsession or hopeless crusade, leaving them vulnerable to the vultures who prey on the uninformed.

There is, however, one method anyone can use to build a decent portfolio -- in about 20 minutes. Your total commission cost, using a discount brokerage house, should not exceed $45 and you do not have to look at your portfolio for a year.

Yes, it is once again time to revisit the investment theory developed and promulgated by money manager Michael O'Higgins. This often-maligned methodology is most often referred to as the Dow Five theory or Small Dogs of the Dow and it was originally described in his book "Beating the Dow," (Harper Collins Publishers, 1991 and since revised).

The theory consists of selecting the five lowest-priced of the Dow's 30 stocks from the 10 with the highest dividend yield. You buy an equal dollar amount, not an equal number of shares, of each of these five companies and hold the shares for one year.

On the anniversary of your purchase, you again identify the five lowest-priced stocks out of the 10 with the highest yield and adjust your portfolio accordingly. Avoid using a "Dogs of the Dow" mutual fund, which would defeat both the low cost and low turnover aspect of the strategy.

By implementing the strategy, you become a contrarian investor. Does the Dow Five theory work every year; no, of course not. But for 2013 the return was 30.6 percent, compared with 31.9 percent total return for the S&P 500.

Your year can start any time. If you should decide to begin now, the list is: AT&T, Cisco Systems, Pfizer, General Electric and Intel. Their combined average dividend yield is 3.65 percent. For additional information, see Dogsofthedow.com.

Note to readers: I will teach Investment Redux for the Lifelong Learning Academy, a non-profit, beginning March 13 at USF Sarasota-Manatee campus. The eight-week course covers aspects of beginning and advanced investment analysis, some portfolio theory, stock screening, etc. Call LLA at 359-4296 for more information, or go to LLA-SM.org.

Lauren Rudd is president of Rudd International, an asset management firm. Neither he nor his employees hold any shares discussed or have plans to buy them within 30 days, nor is there any intended inducement to buy or sell any security. Email him at LVERudd@ aol.com. Calls accepted 10 a.m.- 3 p.m. at (941) 706-3449. Back columns at ruddreport.com. Rudd offers commentary Thursdays on SNN Local News during the 5:30 p.m. newscast.

<p>As someone who regularly teaches courses in investment analysis, it is often apparent to me that, while the consensus is to learn, the risk of dealing with Wall Street continues to be a concern. It is not just an inherent distrust of the Street; the concern often embraces a repugnant opinion of the purveyors of its products.</p><p>That Wall Street has engendered such suspicion is a curse of its own making, a consequence of having gorged itself on the spoils of several financial bubbles, while at the same time decimating the very eggs given to it for growth and safe keeping.</p><p>Tragically, for many it is too late to prevent the victimization perpetrated by those denizens of the financial world who try to engender trust with a stream of letters after their name or an association, however tenuous, with a firm or person of some repute. And then there's the offer of a free meal.</p><p>Unfortunately, the returns they promise are rarely forthcoming.</p><p>To further complicate matters, the advisers angling to take advantage of the unsophisticated concoct a seemingly endless variety of apocalyptic investing scenarios. Of course they promise to help you avoid these treacherous shoals -- for a small fee.</p><p>Ignore it all.</p><p>Investing in common stocks is prudent and appropriate at virtually any time and usually requires little more than a modicum of common sense.</p><p>You do not need professional advice or specialized computer software or expensive newsletters and whatever else is being touted these days by those claiming to have an inside track to the Holy Grail of investing, a flawless method for deciding what to buy and when.</p><p>There is no Holy Grail, though for some the search has become an obsession or hopeless crusade, leaving them vulnerable to the vultures who prey on the uninformed.</p><p>There is, however, one method anyone can use to build a decent portfolio -- in about 20 minutes. Your total commission cost, using a discount brokerage house, should not exceed $45 and you do not have to look at your portfolio for a year.</p><p>Yes, it is once again time to revisit the investment theory developed and promulgated by money manager Michael O'Higgins. This often-maligned methodology is most often referred to as the Dow Five theory or Small Dogs of the Dow and it was originally described in his book "Beating the Dow," (Harper Collins Publishers, 1991 and since revised).</p><p>The theory consists of selecting the five lowest-priced of the Dow's 30 stocks from the 10 with the highest dividend yield. You buy an equal dollar amount, not an equal number of shares, of each of these five companies and hold the shares for one year.</p><p>On the anniversary of your purchase, you again identify the five lowest-priced stocks out of the 10 with the highest yield and adjust your portfolio accordingly. Avoid using a "Dogs of the Dow" mutual fund, which would defeat both the low cost and low turnover aspect of the strategy.</p><p>By implementing the strategy, you become a contrarian investor. Does the Dow Five theory work every year; no, of course not. But for 2013 the return was 30.6 percent, compared with 31.9 percent total return for the S&P 500.</p><p>Your year can start any time. If you should decide to begin now, the list is: AT&T, Cisco Systems, Pfizer, General Electric and Intel. Their combined average dividend yield is 3.65 percent. For additional information, see Dogsofthedow.com.</p><p>Note to readers: I will teach Investment Redux for the Lifelong Learning Academy, a non-profit, beginning March 13 at USF Sarasota-Manatee campus. The eight-week course covers aspects of beginning and advanced investment analysis, some portfolio theory, stock screening, etc. Call LLA at 359-4296 for more information, or go to LLA-SM.org.</p><p>Lauren Rudd is president of Rudd International, an asset management firm. Neither he nor his employees hold any shares discussed or have plans to buy them within 30 days, nor is there any intended inducement to buy or sell any security. Email him at LVERudd@ aol.com. Calls accepted 10 a.m.- 3 p.m. at (941) 706-3449. Back columns at ruddreport.com. Rudd offers commentary Thursdays on SNN Local News during the 5:30 p.m. newscast.</p>